VentureBeat » The Ville

Zynga to shut four more weak games, including The Ville

Dean Takahashi — Wed, 24 Apr 2013 21:25:26 +0000

Zynga said today it will shut down four major games as part of its continued effort to lower costs as it reported earnings today.

Chief operations officer David Ko said in a conference call with analysts that the company plans to shut down four once-big games: The Ville, Empires & Allies, Dream Zoo, and Zynga City on Tencent.

“We are moving to shut down lower-performing games,” on top of canceling CityVille 2, The Friend Game, and Party Place in the first quarter, said Ko.

Mark Pincus [above], chief executive of Zynga, also said that Zynga had canceled two major unreleased games during the first quarter. Those games would have led to “better short-term performance,” but they would not have been good for the company in the long run. For the most part, Pincus said 2013 is a transition year for Zynga as it adapts to mobile games and becomes a publisher and platform for third-party games.

Meanwhile, the company has released its big mid-core game, War of the Fallen, which is aimed at hardcore gamers but offers short play sessions on mobile. And Zynga is launching its Draw Something 2 game today.

Draw Something 2 is an especially important game for Zynga. When the publisher acquired Draw Something developer OMGPOP in early 2012, the game has over 13 million daily active users. As of April 2, it is now down to over 1 million DAUs. Figuring out how to retain players could be a significant issue for Zynga should a similar drop occur with the sequel.

Zynga is also in the testing stages on a new endless runner game, Running with Friends, which is a more social version of the endless running genre that includes games like Temple Run.

The embattled social-game publisher reported better-than-expected earnings for the first quarter ended March 31 and managed to stay profitable. Zynga’s results are closely watched as a bellwether for digital gaming, since Zynga is a huge player in social games on Facebook and it has a big — and growing — presence in mobile games.

Zynga said it had GAAP net income of $4.1 million, or break-even results per share, compared to a loss of $85 million, or 12 cents a share a year ago. Non GAAP net income was $9.1 million, or 1 cent a share, compared with non-GAAP net income of $47 million, or 6 cents a share, a year ago. Revenues were $263.5 million, compared with $320.9 million on a GAAP basis a year ago. Non-GAAP bookings were $229.8 million, compared with $329.1 million a year ago.

Analysts were expecting the company to report a loss of 7 cents a share on bookings of $209 million. Still, Zynga’s stock is tanking in after-hours trading, down 11 percent at the moment, erasing much of the run-up the stock had in the closing of today’s trading. The stock may be down since all of Zynga’s core metrics are down in the first quarter compared to the fourth quarter.

Filed under: Games

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Zynga exec: Debate over clones is a ‘distraction’ — everyone copies

Jeffrey Grubb — Mon, 11 Mar 2013 15:55:43 +0000

Everything is a remix, and according to Zynga, all games are derivative works.

Zynga published an open letter from Dan Porter, the general manager of Zynga New York, to his employees that further explains comments he made at a New York panel on wearable computers Friday. During his talk, Porter seemed to admit that the social-game developer copies popular games when designing their own, according to Quartz — now he says the press took his quote out of context.

“What I actually said was that all games are derived from other games, [I said] that this has been happening long before Zynga, and that the debate about originality in games is vastly overblown and misses the mark,” Porter said.

Gamers, publishers, and developers often loudly criticize Zynga for releasing games that seem to ripoff other popular titles. In August, Electronic Arts sued Zynga for copyright infringement. The publisher claimed that Zynga’s The Ville stole specific concepts from EA’s The Sims Social.

EA and Zynga settled in February.

“Before making Draw Something [and before Zynga acquired us], we ran OMGPOP for four years and made lots of games that were inspired by games we loved, and we emulated the mechanics from games with great U.I.,” wrote Porter. “This is no great revelation.”

Porter is slightly conflating emulating mechanics with outright cloning. When Super Mario Bros. popularized side-scrolling in a platform game, it was clear that other platformers would have to use that mechanic to compete. EA accused Zynga of making nearly an exact copy of The Sims Social with The Ville.

In addition to explaining his comments, Porter also apologized to Zynga staff for generating “negative press.” He also explained what Zynga does best.

“The bigger point that I made, one that was overshadowed, goes to the true genius of Zynga,” he wrote. “After making games for years, it was joining Zynga that made me understand the art, science and special sauce running games as a service.”

Porter called the debate over copying a games a “distraction” and that Zynga’s games-as-a-service model is what is truly important. From a purely financial standpoint, he has a point.

Filed under: Games, Mobile

Zynga and Electronic Arts settle The Ville lawsuit

Jeffrey Grubb — Fri, 15 Feb 2013 19:42:45 +0000

One of gaming’s legal cold wars ended today.

Social-game developer Zynga and major third-party publisher Electronic Arts settled their respective lawsuits regarding Zynga’s The Ville game, according to Insidesocialgames. Neither company can disclose the details of the settlement.

The two companies jointly released the following statement to GamesBeat:

EA and Zynga have resolved their respective claims and have reached a settlement of their litigation in the Northern District of California.

In August, EA sued Zynga. The publisher claimed the developer’s Facebook game The Ville infringed on EA’s copyrights regarding The Sims Social.

“The core legal issue is our belief that Zynga infringed copyrights to our game, The Sims Social,” Lucy Bradshaw, EA’s lead on the game, wrote back in August. “In legal terms, our claim is that Zynga copied the original and distinctive expressive elements of The Sims Social in a clear violation of the U.S. copyright laws.”

In September, Zynga countersued EA, claiming that the publisher was attempting to employ anticompetitive practices to prevent EA employees from moving to Zynga.

In October, Zynga announced layoffs in the Austin studio that was overseeing The Ville. The developer let go a majority of that team.

As of the time of this posting, both The Ville and The Sims Social are still available to play on Facebook. The Ville is also still shockingly similar to The Sims Social.

Filed under: Games

Zynga stock surges as it slightly beats analysts’ reduced targets for third quarter

Dean Takahashi — Wed, 24 Oct 2012 20:21:12 +0000

Zynga reported slightly better than expected earnings today for the third quarter, but struggling social gaming giant is still trying to recover from a downturn in its business. Zynga’s stock is rising in after-hours trading as a result of the better earnings and a stock buyback program. Zynga also announced it’s jumping in the real-money social gambling market with bwin.party in the United Kingdom.

The earnings come just a day after Zynga laid off 5 percent of its 3,000 employees, closing a studio in Boston, preparing closures in the United Kingdom and Japan, and slashing jobs in Austin. And Facebook noted yesterday that Zynga’s contribution to its revenues dropped 20 percent in the third quarter. Zynga said it was sunsetting 13 older games and was significantly reducing its investment in The Ville, which happens to be mired in litigation with Electronic Arts over alleged copycatting.

Zynga reported revenue of $317 million, up 3 percent from a year ago. Bookings for the third quarter that ended Sept. 30 were $256 million, down 11 percent from a year ago. Earnings per share were a loss of 7 cents, compared with break-even results a year ago. Non-GAAP earnings per share were 0 cents ($400,000), down from a profit of 4 cents a share a year ago. The GAAP net loss was $52.7 million, compared to net income a year ago of $12.5 million. That was due to a $95.5 million impairment charge related to the write-off of intangible assets acquired with the purchase of OMGPOP this spring.

“While the last several months have been challenging for us, Zynga remains well positioned to capitalize on the growth of social gaming. We’re implementing a number of steps to drive long-term growth and profitability. The successful launches of FarmVille 2 and ChefVille in the third quarter demonstrate that when we develop great games, our large player audience engages. It’s more clear than ever that along with search, shop, and share, play is a fundamental pillar of the Internet, and Zynga continues to be the leader,” said Mark Pincus, the chief executive and founder of Zynga, in a statement.

The San Francisco-based social gaming gianta warned on Oct. 4 that earnings for its third quarter would be weaker than expected for the second quarter in a row. Due to weakness in the “invest and express” category of games such as The Ville, Zynga said earlier it would report revenue of $300 million to $305 million in the quarter and a net loss of $90 million to $105 million (on a non-GAAP basis, the loss will be $2 million to $5 million). Analysts expected Zynga to lose 1 cent a share on a non-GAAP basis.

“Pretty much in line with the preannouncement, although the cost reduction plan is pretty significant,” said Michael Pachter, an anlayst at Wedbush Securities. “If they can cut $15 million to $20 million in costs per quarter, they’re looking at pretty solid profitability, particularly if they can keep revenues flat or growing. I think the $200 million buyback will get them at least 10 percent of shares, so that should grow earnings by 10 percent or so. It’s interesting that share count dropped a bit, likely because of out of the money options.”

Zynga said that daily active users in the quarter were 60 million, up 10 percent from a year ago. Monthly active users were 311 million, up 37 percent from 227 million a year ago. Average daily bookings per user fell to $.047 from $.058 per user a year ago. Monthly unique usres were 177 million, up 17 percent from 152 million a year ago. Monthly unique payers were 3 million in the third quarter, down 27 percent compared with 4.1 million in the previous quarter. that was mainly due to the weakness of Draw Something.

During the quarter, Zynga launced four games: ChefVille, FarmVille 2, Gems With Friends, and Montopia. Early results from ChefVille and FarmVille 2 are “positive.”

Zynga’s stock price has been lingering around $1.68 billion, which is near Zynga’s cash value of $1.6 billion. That’s a far cry from the $8.9 billion valuation that Zynga had when it went public in December. That has prompted rumors that Zynga is an acquisition target (unlikely, since Pincus has voting control), or, more likely, a management-led buyout to take the company private.

Things started falling apart in the summer. After Zynga reported lower-than-expected results in the second quarter, Zynga’s stock fell 40 percent in a day. In the wake of that report, Zynga has lost a number of executives, including chief operating officer John Schappert. The stock is now at $2.82 a share, far below its initial public offering price last fall of $10 a share. Zynga had also lowered its expectations for the full year ending Dec. 31 to bookings of $1.15 billion to $1.225 billion, while earnings per share for the year are expected to be 4 cents to 9 cents.

The new outlook: Zynga said bookings will be $1.09 billion to $1.1 billion. Adjusted earnings before income taxes, depreciation and amortization will be $152 million to $162 million. Stock-based expense will be $310 million to $325 million. Full-year non-GAAP earnings per share are expected to be 2 cents to 3 cents a share.

After-hours, Zynga’s stock is trading up 33 cents to $2.45 a share, up 15.5 percent. Zynga also announced a stock buyback program, where the company will buy up to $200 million in Class A common stock.

But Zynga is still the No. 1 social gaming company, with more than 316 million monthly active users. The next-largest competitor on Facebook, King.com, has just 48.5 million monthly active users, according to AppData. And FarmVille 2 has had a spectacular launch, with more than 61.3 million monthly active users. The question is whether Zynga can properly monetize the game. Zynga has five of the top 10 games on Facebook.

Typically, 2 percent or 3 percent of Zynga’s users pay real money for virtual goods. But most users prefer not to pay in the company’s free-to-play games on Facebook and Zynga.com. But Zynga is also hoping to boost ad revenues. And it is busy launching third-party games on Zynga.com, Facebook and mobile. Zynga has launched five partner games on Zynga.com: Rubber Tacos, Sports Casino, Mini Putt Park, Fashion Designer, and Knights of the Rose. Zynga also has nine to publishing partners.

Filed under: Games

Zynga lays off almost entire Austin studio

Jeffrey Grubb — Tue, 23 Oct 2012 19:20:10 +0000

GamesBeat can confirm that social game maker Zynga has laid off nearly everyone at its Austin offices.

We have independently verified this claim. Two games, The Ville and another unannounced title, are affected by this downsizing. Employees were given a little over an hour to exit the premises and turn in their Zynga-provided phones, computers, and badges.

Zynga is one of the biggest names in social games. Titles like FarmVille and CityVille have dominated the Facebook game market. But the company has run into a bit of a rough patch. A year ago, Zynga was preparing to launch its initial public offering in which it raised nearly $1 billion in funding. Since then, it’s struggled to live up to its potential. Several games have launched but failed to find substantial audiences. The $180 million acquisition of Draw Something developer OMGPOP looks like a bust and the game looks like it was just a fad.

In its earning report on October 23, Facebook noted that revenue payments from Zynga were down 20 percent compared to the previous year. That is a preview of what we can expect from Zynga’s earning report.

And now, this news which comes a day before Zynga declares its earnings for the year. In what appears to be an effort to bury these layoffs, Zynga timed informing the affected staff with the Apple event that saw a new iPad, iMac, and MacBook Pro announced.

But the San Francisco-based developer couldn’t keep a lid on it. A friend of one of the developers posted the following to Twitter as it was happening:

Zynga just laid off 100+ employees (incl. my friends) in its Austin office during the Apple Event. Gave them 2 hours to vacate. RT please.

— Justin Maxwell (@303) October 23, 2012

Zynga has yet to comment on the issue, but we have reached out to several employees and executives for an official word.

The company’s stock is down nearly 4 percent to $2.23 with an hour left before the closing bell.

According to Superdata, a data research firm, things aren’t looking great for the gaming giant. Its monthly active users are down to 147.8 million from 162.4 million two years ago. Overall player engagement was at a low of 14 percent in September. Its market share on Facebook isn’t growing as other developers have started to outpace Zynga.

Most of these negatives come due to Zynga’s overreliance on Facebook. It is attempting to diversify with Zynga.com and mobile games, but those ventures are more challenging and competitive. Zynga hasn’t re-created its mammoth success in those fields.

Zynga strikes back hard at EA in copyright infringement case

Dean Takahashi — Fri, 14 Sep 2012 20:27:59 +0000

Accused of copying Electronic Arts’ games, Zynga lashed back at its rival today in its first legal response to a copyright lawsuit.

Zynga said in a filing today that there is no merit to EA’s claim that Zynga’s recently launched The Ville was a copy of EA’s The Sims Social, which came out a year before. Zynga’s legal defense consists of several layers. The San Francisco social game giant made a motion to strike a number of allegations from the EA lawsuit that it said were irrelevant to the claims and inflammatory. Zynga has been quiet until now, but it is letting it rip. Zynga denied the copying charges and also alleged that EA tried to get it to break antitrust laws by proposing a no-hire collusion on snagging each others’ employees.

Zynga said it received more than 3,000 unsolicited resumes from EA employees. But John Riccitiello, the chief executive of EA, allegedly hit the roof when Zynga stole executives John Schappert, Jeff Karp, and Barry Cottle. He allegedly sent an email to Schappert asking him to send back any EA employees who wrote to Schappert about working at Zynga. In turn, Zynga claims the copyright lawsuit is aimed at discouraging more employees from moving to Zynga and to mollify EA’s board, which wanted the defections to stop. (Ironically, the defections have stopped, and Zynga is now losing employees because it had a weak earnings report).

“Today we responded to EA’s claims which we believe have no merit. We also filed a counterclaim which addresses actions by EA we believe to be anticompetitive and unlawful business practices, including legal threats and demands for no-hire agreements. We look forward to getting back to focusing all our efforts on delighting our players,” said Reggie Davis, general counsel of Zynga, in a statement.

Zynga also said in about 20 pages of text that it did not copy EA. It addressed each specific allegation. It also noted that Zynga launched its YoVille (2008, pictured right) people simulation game long before EA debuted its The Sims franchise on Facebook. And Zynga also said that Activision was the pioneer of people simulation games with its Little Computer People title (published in 1985), which was published long before The Sims debuted in 2000.

In a detailed lawsuit, EA alleged that Zynga’s character models in The Ville were strikingly similar to EA’s in The Sims Social and that customizing the skin tones of characters was also nearly identical to the way that EA handled it in The Sims Social. Homes could also be built in almost exactly the same style, and that the doors in homes in The Ville are the same height as they are in The Sims Social. Zynga’s game also has a similar “home value” concept where the value of purchased items is tallied up.

EA launched The Sims Social in August 2011. The game became the biggest threat to Zynga’s dominance on Facebook, growing all the way to No. 2 and getting tens of millions of players. But the game didn’t have staying power, and its usage fell this year. When EA filed the lawsuit, EA Maxis chief Lucy Bradshaw said that EA was standing up for the industry. At that time, Zynga said that EA’s own SimCity Social bore a lot of resemblance to Zynga’s earlier title, CityVille. Zynga launched The Ville (left) in June.

Zynga described EA’s complaint as an “unrestrained ramble of immaterial, inflammatory, and prejudicial allegations that have no bearing on the issue at hand.” Zynga said in its response that both The Ville and The Sims Social belong to a longstanding and well-developed game genre known as “life simulation games” and no one, “including EA, may lay claim to the exclusive right to develop and release games in that genre.” Zynga said that EA did not invent the genre, as The Sims creator Will Wright acknowledged he had played Little Computer People before making The Sims.

Zynga said that particular scenes expressing regular life, like taking a shower, or “scenes a faire,” are not protectable. But it did point out that many “scenes a faire” from SimCity Social are similar to CityVille. Zynga noted that EA sued after The Sims Social had fallen from a peak of 66 million monthly active users over nine months to 15.5 million MAUs, down 78 percent.

Hilariously, Zynga responded to the “shower copycat” allegation, saying, “Zynga admits that in The Ville, when a player decides to take a shower, the player clicks on the shower stall, the player walks to the shower, the player takes off his or her clothes thereby revealing the player in undergarments, the player gets into the shower, the shower curtain closes, and steam appears on the top of the shower. Zynga lacks knowledge or information sufficient to form a belief as to the truth of the allegations regarding the bodily needs aspects of The Sims Social and therefore denies those allegations.”

EA spokesman John Reseburg said, “This is a predictable subterfuge aimed at diverting attention from Zynga’s persistent plagiarism of other artists and studios. Zynga would be better served trying to hold onto the shrinking number of employees they’ve got, rather than suing to acquire more.”

Here are links to the filings:

1: http://www.scribd.com/doc/105945450/Part-1-Zynga-s-Motion-to-Strike

2: http://www.scribd.com/doc/105945465/Part-2-Zynga-s-Answer-and-Demand-for-Jury-Trial

3: http://www.scribd.com/doc/105945468/Part-3-Counterclaim-Public

Filed under: Business, Games, Social

Zynga sees FarmVille and CityVille user spikes [UPDATE: Maybe not]

Evan Killham — Wed, 08 Aug 2012 21:20:46 +0000

[Update: Facebook has confirmed that the spikes are due to reporting errors, according to AppData's pages for both FarmVille and CityVille.]

[Update 2: Zynga has also confirmed a technical snafu. "Facebook discovered an insights bug in the reporting of some games as they were testing the new 'Start Now' feature. They began working on a fix as soon as the issue came to their attention, and we expect insights to reflect the correct numbers shortly," a Zynga spokesperson told GamesBeat via e-mail.]

Social game developer Zynga has been in the news a lot recently, and most of it has been of the insider trading and copyright infringement variety. But that streak has paused (at least temporarily) with a report from brokerage firm Sterne Agee analyst Arvind Bhatia, which reveals that the numbers of daily active users (DAU) of two of Zynga’s games, FarmVille and CityVille, saw massive peaks over the past week.

Sterne Agee’s data (see below) show that at the beginning of the month, FarmVille’s number of DAUs rose from about 3.4 million to just under 12 million over a couple of days. CityVille’s numbers went from 3.2 million to 7.8 million over about the same period.

“We suspect it may be related to a special cross promotion within the recently launched game in the Ville franchise, called The Ville,” Bhatia’s report says. After the rise, the DAUs went back down almost as quickly, but they’re still higher than where they started. As of this writing, FarmVille’s numbers were holding steady yesterday at 5.7 million DAUs, and CityVille’s were at 6.2 million, according to metrics site AppData.

Filed under: Games, Social

EA sues Zynga, alleging The Ville is a blatant clone of The Sims Social

Dean Takahashi — Fri, 03 Aug 2012 18:10:23 +0000

The grudge match between Electronic Arts and Zynga just got fiercer.

Electronic Arts, one of the world’s biggest console game companies, has filed a lawsuit against Zynga, the largest social gamemaker. EA charged that Zynga’s The Ville is a blatant copycat of its own The Sims Social. As the overall game industry’s growth slows down, this kind of dispute is to be expected, as big players try to elbow each other out of the way. For Zynga, it’s been a particularly tough month, its stock crashing after a very weak earnings report. The company has also been hit with shareholder lawsuits because of an additional drop after that report.

In a blog post, EA’s Maxis chief Lucy Bradshaw wrote, “The core legal issue is our belief that Zynga infringed copyrights to our game, The Sims Social. In legal terms, our claim is that Zynga copied the original and distinctive expressive elements of The Sims Social in a clear violation of the U.S. copyright laws.”

Bradshaw added, “The legal reasons are solid. But for creative teams who feel that their hard work and imaginations have been ripped off, there’s obviously an emotional element, too.”

EA launched The Sims Social in August, 2011, as a spin-off of its long-running franchise, The Sims. Players create their own characters, build a home, establish a family, and interact with their friends. The game got tens of millions of users but fell off rapidly in audience size this year. Zynga introduced The Ville, which former game designer Mark Skaggs (pictured below) and his team designed, in June.

Other companies have lobbed the charge of copycat at Zynga for its various Facebook simulation games in its “ville” series. But EA’s lawsuit is perhaps the biggest complaint to date, and it won’t be something that Zynga can shake off lightly.

Zynga’s Reggie Davis, general counsel, said, “We are committed to creating the most fun, innovative, social and engaging games in every major genre that our players enjoy. The Ville is the newest game in our ‘ville’ franchise — it builds on every major innovation from our existing invest-and-express games, dating back to YoVille and continuing through CityVille and CastleVille, and introduces a number of new social features and game mechanics not seen in social games today. It’s unfortunate that EA thought that this was an appropriate response to our game, and clearly demonstrates a lack of understanding of basic copyright principles. It’s also ironic that EA brings this suit shortly after launching SimCity Social, which bears an uncanny resemblance to Zynga’s CityVille game. Nonetheless, we plan to defend our rights to the fullest extent possible and intend to win with players.”

Bradshaw added, “The similarities go well beyond any superficial resemblance. Zynga’s design choices, animations, visual arrangements, and character motions and actions have been directly lifted from The Sims Social. The copying was so comprehensive that the two games are, to an uninitiated observer, largely indistinguishable. Scores of media and bloggers commented on the blatant mimicry.”

“This is a case of principle,” she said. “Maxis isn’t the first studio to claim that Zynga copied its creative product. But we are the studio that has the financial and corporate resources to stand up and do something about it. Infringing a developer’s copyright is not an acceptable practice in game development. By calling Zynga out on this illegal practice, we hope to have a secondary effect of protecting the rights of other creative studios who don’t have the resources to protect themselves.”

In closing, Bradshaw said, “As a longstanding game developer, I know what it feels like to pour your heart and soul into creating something unique and special for your fans to enjoy. Today, we hope to be taking a stand that helps the industry protect the value of original creative works and those that work tirelessly to create them.”

Filed under: Business, Games

Analysts and game industry reeling from Zynga’s shocking earnings report, stock down 39 percent

Dean Takahashi — Thu, 26 Jul 2012 17:18:25 +0000

Zynga‘s weak earnings report yesterday has spurred an investor panic, cratering the company’s stock price by 39 percent today.

Zynga blamed the shortfall in earnings and its lowered outlook on several factors: general softness for existing titles, delay of The Ville people simulation game, changes that Facebook that seriously hurt engagement of older games, and a disappointing performance for the Draw Something mobile game. The consequences of the miss could be far-reaching.

Arvind Bhatia, analyst at Sterne Agee, said the Zynga problems bode ill for Facebook, which reports earnings today. Zynga’s market value, with its stock price at $3.15, is now $2.3 billion, well below its December initial public offering price of $10 a share and market value of $9 billion. Zynga’s stock price is a little embarrassing, considering it has $1.6 billion in cash.

At the Casual Connect game conference in Seattle, lots of people were stunned at the weak earnings and sharp stock drop. The woes of the biggest casual game company were the topic of conversation at the conference parties on Wednesday night. Zynga still has 220 million monthly active users, but that figure is down from the past.

“I was very surprised,” said Lon Otremba, chief executive of Tylted and one of the 2,700 attendees at Casual Connect, in an interview with GamesBeat. “This isn’t good for the rest of the industry.”

Indeed, Electronic Arts’ stock price is down 3 percent today and Glu Mobile’s has dropped 12 percent.

Michael Pachter, analyst at Wedbush Securities, noted that investors had been banking on a good second half of the year for Zynga, but the guidance Zynga offered changed that view. The company guidance — that revenues would be 50 percent lower than previously expected — implies that the second half “will not be the stronger half, in direct contrast to management’s comments earlier this year,” Pachter said. He lowered his prediction for Zynga’s stock price over the next year from $17 a share to just $7.

Ben Schachter, an analyst at Macquarie Research, said the results were “shocking” and guidance of revenues raised “our worst fears about the stability of the business model and competitive positioning.” He lowered his price target from $7 to $3.50 a share. Zynga said its revenues are expected to be $1.15 billion to $1.225 billion for the year, compared with Wall Street’s previous expectations of $1.44 billion.

He wrote in a research note, “Our key long-term concern remains this: What is Zynga’s sustainable competitive advantage? On Facebook, it executed well against its first-mover status, but with changes from Facebook, this advantage is wearing thin and users seem less willing to pay.”

He added, “On mobile, thus far, Zynga looks little different to us than a myriad of other casual game companies. It has acquired some hit mobile titles that monetize reasonably well through advertising, but without first-mover advantage and a platform on which to scale, it has not yet been able to leverage mobile hits into significant successes for its other games.”

With the uncertainty, Schachter said, “We have little faith in our, or the company’s ability, to model revenue in either the near or long term. Additionally, while real-money gaming remains a potential positive catalyst, it is extremely difficult to quantify at this early stage and we prefer to see management at least begin to execute against the opportunity before giving them any credit. The bottom line is that Zynga over promised and significantly under delivered.”

Atul Bagga, analyst at Lazard Capital, also was disappointed. He said in a note that the “magnitude of the miss and the outlook revision make us concerned about users’ long-term value and Zynga’s ability to profitably re-engage with users.” He downgraded his recommendation on the stock from “buy” to “neutral.”

“The results were a surprise, and contradicted what we have picked up speaking with a few companies in the space,” Bagga said. “We believe that the miss could have partially stemmed from the loss of some of the super-high-paying users or “whales.” He said he was surprised by the “sudden change in fundamentals.”

Colin Sebastian, an analyst at R.W. Baird, also said the results were worse than anticipated. Users appear to be tired of “management style” simulation games, but the outlook in the long-run for mobile games is good, he said. Average daily bookings per daily active user, or the money coming from each paying user, declined 10 percent from the previous quarter. That means that existing games aren’t monetizing as they once were.

Filed under: Dev, Games, Mobile, Social

Zynga misses Q2 earnings estimates by a wide margin, incurring Wall Street’s wrath

Rob LeFebvre — Wed, 25 Jul 2012 20:55:14 +0000

Social gaming giant Zynga today posted a drop in stock prices, reporting earnings per share (EPS) at $0.01, far below the estimated $0.06 many analysts predicted ahead of time. It posted disappointing overall revenue as well, reporting $332.5 million, which is much lower than the $344.12 million estimation by analysts.

Wall Street severely punished Zynga for its weak quarter, sending the company’s stock down $3.03, or about 40 percent, in after hours trading.

All this despite pretty good revenue growth. The social game publisher’s Q2 revenue of $332 million is up 19 percent over the previous year, and its six month year-to-date revenue of $653 million is up 25 percent year-over-year. Zynga is also reporting Q2 bookings of $302 million, up 10 percent year-over-year, with six months year-to-date bookings up 12 percent, at $631 million.

“Our games reached record audiences, achieving over 300 million monthly active users. We grew our mobile footprint five-fold in the year to 33 million daily active users making Zynga the largest mobile gaming network,” said chief executive Mark Pincus.

It wasn’t all sunshine and roses for the CEO, though: “We also faced new short-term challenges which led to a sequential decline in bookings. Despite this, we’re optimistic about the long-term growth prospects on mobile where we have a window of opportunity to drive the same kind of social gaming revolution that we enabled on the web.”

Zynga also reported today a non-GAAP EPS of $0.01, down from $0.05 in the second quarter of 2011 with a six months year-to-date non-GAAP EPS of $0.06, down from $0.16 in the first half of 2011.

Zynga’s stock price closed at $5.08 per share today, reflecting a $0.16 per share increase, or 3.32 percent, over its opening at $4.96. Overall, the stock is way down from a high of $14.69 this year, and the after-hours dive is making that drop even worse.

Wedbush Securities’ Michael Pachter mentioned his surprise at the dismal showing, acknowledging their lower guidance on flattish bookings and EPS. He attributes some of that to the shift from desktop to mobile, implying that they aren’t monetizing mobile as well. However, he cautions that the company may be actively conservative in its guidance, as their bookings are in fact up around 12 percent.

Zynga launched several new games this quarter, including Bubble Safari, which Zynga claims is the number one arcade game on Facebook. Additionally, Zynga released The Ville, which it reports is the number two game behind Zynga Poker, and four other games, including Ruby Blast, Zombie Swipeout, Zynga Slots, and Matching with Friends.

On the user front, Zynga is reporting an increase of 23 percent year-over-year for daily active users (DAUs) for this second quarter, as well as an increase of 34 percent year-over-year in monthly active users (MAUs). Monthly unique users (MUUs) increased from 151 million in the second quarter of 2011 to 192 million in the second quarter of 2012, up 27% year-over-year, while monthly unique payers (MUPs) increased 16 percent. The bookings, however, as Pincus mentions above, were down 10 percent year-over-year, decreasing from $0.051 last year to $0.046 now.

Zynga is lowering its outlook to reflect delays in launching new games, a faster decline in existing web games due in part to a more challenging environment on the Facebook web platform, and reduced expectations for Draw Something.

As a result, Zynga’s updated outlook for 2012 is as follows:

Bookings are projected to be in the range of $1.15 billion to $1.225 billion.
Adjusted EBITDA is projected to be in the range of $180 million to $250 million.
Stock-based expense is projected to be in the range of $410 million to $430 million.
Capital expenditures are projected to be in the range of $370 million to $380 million, which includes the purchase of our corporate headquarters building in April 2012.
Our effective tax rate for non-GAAP net income is projected to be in the range of 50% to 60%.
Non-GAAP weighted-average diluted shares outstanding are projected to be approximately 845 million shares in the fourth quarter of 2012.
Full year 2012 non-GAAP EPS is projected to be in the range of $0.04 to $0.09.

Filed under: Business, Games

Zynga’s Mark Pincus discusses how mobile could disrupt the game industry (video interview)

Dean Takahashi — Wed, 18 Jul 2012 17:00:45 +0000

Mark Pincus, the chief executive, chief product officer, and founder of Zynga, isn’t shy about expressing his opinion. The head of the largest social-gaming company spoke at our opening fireside chat at MobileBeat/GamesBeat 2012 last week in front of a crowd of about a thousand people.

Pincus once asked Apple to fix its ecosystem for mobile game companies. It was slow to do so, so Pincus encouraged his developers at Zynga to continue making Facebook games. Later on, after Apple saw the light and expanded its support for games, Zynga came roaring back. We asked him what he needed from the mobile ecosystem today, and his answer was enlightening.

Pincus wants what he calls “90-10,” or markets where Zynga can launch a game and have 10 million players within 90 days. If it can do so, that market is “investable at scale.” That’s what Zynga can do on Facebook, but this isn’t the case yet on mobile platforms. He wants the industry to be able to invest in high-quality content and get a return on it. The executive wants channels so that many more games can be discovered beyond the top-25 ranks.

“We found on Facebook that games can get viral and pass through a lot of people,” Pincus said. “Really, on mobile, games spread through word of mouth. It happens in pools and hotels and airplanes. It doesn’t happen online. I’m excited about when it can happen online, and it can happen at a much faster rate.”

Going forward, Pincus believes that “we as an industry can create this ‘dial tone’ for play that can create our own 90-10,” which will allow game companies to regularly launch games, get them noticed, and see them turn into blockbusters.

But even if the mobile ecosystem isn’t perfect, Zynga has to cross over (per our theme of The Cossover Era) into it anyway. That’s the way that the company will hit its goal of reaching a billion gamers. Zynga has made one large mobile acquisition and many smaller ones, and it has built up its team organically as well. The company’s chief thinks the market will grow fast, but he’s pouring his money into making better products now, not marketing.

“It’s obvious we should all be investing heavily, but the flywheel isn’t there in an obvious way,” he said.

We touched on a variety of subjects. Pincus weighed in on mobile technology, social casino games, and market-share fights. Pincus said his company goes head-to-head against rivals in existing game genres by making experiences more social and modifying them to suit consumer tastes after they ship. He says the result is usually an expansion of a game genre to many more consumers than what previously existed in the category. That effect, he says, is a blue-ocean strategy, not a red-ocean strategy (market-share battle). That’s why Zynga took two years to develop The Ville, the people-simulation title that the gamemaker recently launched in competition with Electronic Arts’ The Sims Social.

“The only way we are going to grow this industry is by creating new excitement, new mechanics, and new social,” he said. “The more investment, innovation, competition you are going to have, the faster we are going to move these genres.”

Pincus believes that mobile itself is going to be disruptive, and his team continues to bet the farm on social.

Here’s a video of our full conversation at MobileBeat/GamesBeat 2012 below.

Mark Pincus mb2012 from VentureBeat on Vimeo.

Photo credit: Michael O’Donnell

Filed under: Business, Games, Mobile, Social

GamesBeat weekly roundup: Dawnguard, Zynga Unleashed, and Sega’s ongoing decline

Jasmine Maleficent Rea — Fri, 29 Jun 2012 19:37:09 +0000

If you follow VentureBeat but don’t regularly check our GamesBeat site, here’s a list of the best games stories we ran over the last seven days that you may have missed.

This week, Sega shut down several studios world-wide, Zynga held a press event in San Francisco revealing tons of new Facebook social games, and developer Radical Entertainment shuts its doors.

You’ll also find a review for The Elder Scrolls V: Skyrim expansion Dawnguard and Lego Batman 2: DC Super Heroes.

GamesBeat:

The DeanBeat: Zynga battles to dominate the red ocean, not the blue

The Last of Us’ “Truck Ambush” trailer: now with 100% more Sackboy (video)

Console game studio Radical Entertainment shuts its doors

Sega closes multiple offices worldwide and focuses on digital

Nintendo hires a networking chief to shore up a weak spot

Dawnguard finally brings a sense of urgency to The Elder Scrolls V: Skyrim (review)

How we voted in the Game Critics Awards

Infinity Blade is more profitable than Gears of War

Valve releases the magically fiery ‘Meet the Pyro’ video

Halo 4′s free Spartan Ops content detailed: 50 missions spanning 12 hours

Past sales point to a ‘win’ for Nintendo with the 3DS XL

New Smart TV device allows game-streaming via OnLive

Sulake un-mutes Habbo Hotel in select countries for first time since sex scandal

CCP’s David Reid says Dust 514 heralds a new free-to-play era on consoles (interview)

Dragon Eternity lets iOS gamers play with Android users

4 games that should be in Kirby’s 20th Anniversary Collection

GamesBeat casts the Need for Speed movie

Lego Batman 2 tries to redefine the franchise but stumbles (review)

VentureBeat:

Delaware’s approval of online gambling will make social game companies perk up

Gaikai streams Bulletstorm console game in the Chrome browser

Meet the judges for our GamesBeat 2012 ‘Who’s Got Game’ game-startup competition

Lara Croft will invade your Chrome web browser this fall

Hello, Hero Academy: $2M deal helps mobile-platform Yodo1 bring Western games to China

New institute gets $10M to gamify education for kids

The new console war pits Microsoft, Nintendo, and Sony in an Apple arena

Pocket Gems launches All Talk voice-based mobile game

Pamela Anderson takes on Zynga with BamPoker game

YoYo Games launches a series of Chrome games with the flip of a switch (exclusive)

Zynga’s big Unleashed event strikes out with investors

Earn real recipes while playing Zygna’s new game, ChefVille

Zynga confirms that FarmVille 2 is in the works

Zynga With Friends to feature live synchronous multiplayer

By the numbers: Zynga’s total words, drawings, users, and more

Take-Two aims big in China with free-to-play NBA online game with Tencent

Google transforms its homepage into a Turing machine minigame

Filed under: Games

The DeanBeat: Zynga battles to dominate the red ocean, not the blue

Dean Takahashi — Fri, 29 Jun 2012 15:00:14 +0000

Zynga showed off a bunch of new games at its Unleashed event this week, and Wall Street had a sour reaction, knocking down the company’s stock price 5 percent. What gives?

For sure, Zynga didn’t show anything that blew away consumers or investors. Instead, it offered impressive usage stats, sequels, and a solid set of games in familiar, popular genres that other game publishers already serve. Zynga might roll right over its competitors in those categories because it’s the big kahuna of social games.

It’s a perfectly good strategy for a market leader, and it’s worked for Zynga before. When a rival came up with a farm game, Zynga created a farm game that worked better and was more social. The company’s goal is to have its games be the most entertaining and the most social in a category. Investors ought to be happy about that strategy, since it has worked for years now and enabled Zynga to go public. But they weren’t.

I think one reason is that Zynga showed only its “red ocean” strategy, not a “blue ocean strategy.” Zynga is charging head-on at its rivals, fighting for market share with the sharks as they go after the meat (in this case, Facebook players) in the bloody red ocean. The concept here was chronicled in 2005 in the book “Blue Ocean Strategy” by W. Chan Kim and Renée Mauborgne. In a red ocean battle, the market share is fixed, and competitors fight each other for it in a zero-sum game. But in the blue ocean, where there are no competitors, a company can be successful by expanding the size of the market.

Zynga did this in the early days of Facebook games, when it pioneered the market for free-to-play online games such as Zynga Poker, Mafia Wars, and FarmVille. (Sure, it was accused of copying then as well). The company picked up middle-aged women and other people who were not hardcore gamers. As Facebook grew by the hundreds of millions, so did Zynga. It did not simply steal gamers from the existing console game publishers.

But this week, just about every title that Zynga announced was in direct competition with a rival. The Ville, introduced by game designer Mark Skaggs above, is squarely aimed at taking players away from Electronic Arts’ The Sims Social. By the same token, EA’s own SimCity Social is aimed at Zynga’s CityVille. That’s a red ocean fight.

With bubble shooter titles such as Bubble Safari and Ruby Blast, Zynga is going after rival King.com, which has soared in popularity in the last year with games that have short, one-minute gameplay times, much like arcade titles. And with its Matching with Friends game, Zynga is going after Wooga’s Diamond Dash and PopCap’s Bejeweled Blitz.

Alex Dale, chief marketing officer at King.com, said, “Zynga is spreading itself across many categories – resource management, ersatz gambling, casual social, and so on. It will be interesting to see how things will work out given their extensive reach.”

This is a good point. Zynga has nearly 3,000 employees and more than 150 veteran game designers. This week, Zynga only showed five of the games that are under development across a huge development organization. But Zynga doesn’t have an infinite amount of resources to go head-to-head against everybody. It has to choose wisely.

Wright Bagwell, the director of design at Zynga, defended his company’s strategy. If you went to the Electronic Entertainment Expo (E3) show in Los Angeles, it seemed like there were too many games where “guys with 5 o’clock shadows” were shooting everyone in sight. Zynga’s games reach a far larger audience, and that is exciting for game designers, Bagwell said. And the skill in creating these games isn’t just in the choice of topic but in the capability to create a service that lasts forever. That’s often where Zynga adds value in the industry; players see that, but critics who don’t play its games do not.

“We know what genres work really well,” Bagwell said, noting how the company is religious about analytics feedback. “I feel like we are trying cool new things. We are doing new games that we are superexcited about. I feel the company is trying a lot of genres, lots of different things.”

By going after these players, Zynga is picking fights with the largest makers of Facebook games, and it’s several times bigger than all of them. It can use its scale advantages, such as its capability to cross-promote games, to defeat them. It has also invested heavily in data center infrastructure, allowing it to host more players at lower costs. And it can host games at higher speeds, allowing it to add features such as synchronous multiplayer gaming to its Bubble Safari game.

Zynga is using the brute force method of fighting its rivals. That’s not efficient, and at some point, it will run out of the resources to fight everyone and innovate at the same time. It’s not an elegant way to win, and someone who comes up with a more innovative, blue ocean strategy will take the lead.

Zynga knows that it has to come up with different kinds of games, but it doesn’t have to design every one of them. So it started its third-party publishing program, where it publishes games built by outside developers. Those developers are free to take risks and swim out to the blue ocean. So far, there isn’t much to show except a game dubbed Rubber Tacos. That’s not likely to be Zynga’s savior, but something like it, generated by a small and creative team, probably could be.

GamesBeat 2012 is VentureBeat’s fourth annual conference on disruption in the video game market. This year we’re calling on speakers from the hottest mobile, social, PC, and console companies to debate new ways to stay on pace with changing consumer tastes and platforms. Join 500+ execs, investors, analysts, entrepreneurs, and press as we explore the gaming industry’s latest trends and newest monetization opportunities. The event takes place July 10-11 in San Francisco, and you can get your tickets here.

Filed under: Business, Games

Zynga rolls out new games for casino, arcade, and mobile — are they clones?

Dean Takahashi — Tue, 26 Jun 2012 19:16:12 +0000

Zynga announced several new games at its Unleashed event today in San Francisco. These games aren’t likely to do much for the company’s reputation for cloning the games of other companies.

Among the obvious titles that could draw flack is The Ville, which is a lot like Electronic Arts’ The Sims Social, a people simulator. Zynga’s position on cloning the games of others is clear. It intends to make its games more innovative and fun by moving into familiar genres and making its games more social.

Zynga is clearly moving into areas that are hot, but it is interesting that the company is tackling genres where it will run into the most competition from existing games from rivals such as EA, Wooga, and King.com. That speaks to Zynga’s confidence that whenever it enters a new area, it can make its games more fun and more popular than existing competition.

Jeff Brown, spokesman for EA, said, “Just once, can Zynga publish a game that they didn’t clone from another developer?”

Among the new titles the company announced today are Zynga Elite Slots, a new slot machine game that is the company’s cross-platform play in social casino games, a hot category for 2012. Zynga already has a bunch of casino games headed by Jesse Jasonov (pictured above) including its oldest game, Zynga Poker. Other new titles include Zynga Slots on mobile, Zynga Bingo, and now the new Zynga Elite Slots games.

Zynga Poker has more than 35 million players a month. Those players take part in more than 55 million hands per day. That base is valuable because it allows Zynga to cross-promote new casino games in the genre, like Zynga Elite Slots. Zynga Bingo was launched earlier this year, and 368 million bingo cards have been played in it so far. About 10 million rounds are played every day, or about 66 years of bingo time.

Zynga also recently launched its arcade “match three” game, Ruby Blast. That game will be rolled out across smartphone and tablet platforms later this year. That game is proving popular, but it is also subject to the “clone” charge since PopCap Games popularized the genre with Bejeweled many years ago.

Perhaps the most original title Zynga had was ChefVille, a restaurant simulation game. But that seemed like a mashup of existing titles such as Zynga’s own Cafe World and other restaurant-related games.

Filed under: Games

Zynga’s latest Facebook game takes Electronic Arts’ Sims Social head-on

Jasmine Maleficent Rea — Tue, 26 Jun 2012 07:00:46 +0000

Social game developer Zynga has announced a new title in its popular “ville” series of Facebook games called The Ville, which looks a lot like Electronic Arts’ The Sims Social.

The Ville is a Facebook-based title allowing players to build and upgrade a virtual home as they interact with their friends. Gamers can plant gardens, take bubble baths, and even lure unsuspecting avatars into bed. Every action in the game depends on your character’s happiness, which only increases by interacting with other Ville citizens. The company unveiled the game at its Zynga Unleashed event today in San Francisco.

Multiplayer in The Ville is asynchronous, meaning that the other players do not control the avatars that your character interacts with. While playing, you can check your friends’ real-time Facebook updates and comment on them without having to leave the application. Zynga also implemented its Ztalk system, which lets friends leave each other messages in-game about events in lieu of active multiplayer.

Jeff Brown, spokesman for EA, said, “Just once, can Zynga publish a game that they didn’t clone from another developer?”

This works in situations where a player has a meaningful interaction with someone else’s avatar. If you “make whoopie” with a friend’s character, you can then immortalize the event on his wall.

Many of the Ville’s core features resemble content found in The Sims Social, including consumable items, friendship points, and, of course, home decoration and expansion. Zynga put its custom spin on these functions, bringing over its signature avatar style and interface. While The Ville is reminiscent of The Sims Social, it has a much less intrusive menu design that offers a wider view of the playing area.

What happens when The Ville launches Wednesday, June 27 will be interesting. The Ville is so similar to The Sims Social that people who previously played FarmVille or CityVille might switch back to this familiar style.

Filed under: Games